Best Available Information

1. Best Available Information Collaboration by: Mark Byrne, Rick LaRose, Audrey Martel, Carmon Martorana, Charmin Tillman and Richard Wagner

2. Define Adequate and Inadequate. • Adequate: Sufficient for a specific requirement. • Inadequate: Lacking sufficient power, capacity, or competence.

3. IFTA: • A540 Verification of Licensee Records .200 The Audit will be completed using the best information available to the base jurisdiction. The burden of proof is on the licensee.

4. IFTA: • A550 Inadequate Licensee Records: .100 Fuel Use Estimation If the licensee’s records are lacking or inadequate to support any tax return filed by the licensee or to determine the licensee’s tax liability, the base jurisdiction shall have authority to estimate the fuel use upon (but is not limited to) factors such as the following: .005 Prior experience of the licensee; .010 Licensees with similar operations; .015 Industry averages; .020 Records available from fuel distributors; and .025 Other pertinent information the auditor may obtain or examine Unless the auditor finds substantial evidence to the contrary by reviewing the above, in absence of adequate records, a standard of 4.0 MPG/1.7KPL will be used.

5. IFTA: • A550 Inadequate Licensee Records/Assessment .200 Tax Paid Fuel Credits When tax paid fuel documentation is unavailable, all claims for tax paid fuel will be disallowed.

6. IRP: • 1502 (1010) Failure to Preserve and Maintain Records If a registrant fails to maintain records, or after 30 days from receiving written notice, fails to make records available to the member jurisdiction, the member jurisdiction may impose an assessment. The assessment must be based on the member jurisdiction’s estimate of true liability established from: 1. information the registrant furnished; 2. information the member jurisdiction gathered; 3. information relative to other similar registrants based in jurisdiction; or 4. any other information available to the member jurisdiction.

7. IRP: • 1704 (1065) Netting of Audit Adjustments …If the records are not made available, or if the records made available are inadequate for an examination, any credits calculated for jurisdictions which are caused by the inadequacy of records shall not be included in the fees netted under Article XVI. • 603 Request for Records ...Records must be adequate and complete for each fleet being audited. If the records are not made available, or if the records made available are inadequate for examination purposes, an assessment of liability may be imposed in accordance with Article XV of the Plan. If an estimate of the registrant’s true liability cannot be determined, the registrant may be assessed 100% registration fees for the jurisdiction. Any credits calculated for jurisdictions which are caused by the inadequacy of records will not be reflected in the fees netted under Article XVII of the Plan.

8. IRP: • 802 Registrant Audit Report 802.2 …The audit report must contain a statement on whether the registrant’s distance accounting system is adequate or inadequate and reason why, as reflected by the consistency in which the registrant’s distance accounting system meets acceptable criteria as established in Section 400 and Article XV of the plan. • 803 Interjurisdictional Audit Report and Distribution of Audit Findings 803.3 …A statement on whether the registrant’s distance accounting system is adequate or inadequate and reason why, as reflected by the consistency in which the registrant’s distance accounting system meets acceptable criteria as established in Section 400 and Article XV of the plan.

9. Auditor JudgmentIMPORTANT? • Education • Life Experience • Work Experience

10. Group Exercises • Each Group will be divided into an Audit Team and a Industry Team. • There are three scenarios and each group will be assigned one scenario to review. Keep in mind each team within the group needs to be prepared to defend their points before an Appeals Board. • The Appeals Board will have the following members: Joel Foreman, Adrian Hughes, Rick LaRose and Richard Wagner.

11. Audit Team • Read Scenario and choose a spokesperson. • Determine your audit approach keeping in mind what to do when you have inadequate records. • Answer any questions associated with the scenario. • Summarize your answer and present your findings to the Taxpayer Team. Use the IFTA and IRP manuals to defend your position. • Spokesperson should be prepared to describe your scenario (available records, missing records, etc.) and tell how the audit was conducted using the best available information.

12. Industry Team • Read the scenario and choose a spokesperson to defend the audit findings. • Based on the audit findings presented to you, defend your company’s position. Use the IFTA and IRP manuals to defend your position. • Present alternatives to conducting the audit. (What records did you have available for the auditor to use?)

13. Missy Miles – Audit Position • What was missing? some driver logs some OTR fuel receipts some toll receipts no bulk tank reconciliation

14. Missy Miles – Audit Position What is causing the potential to use BEST INFORMATION AVAILABLE? a) Drivers take their trucks home b) A lot of Mass Turnpike Travel c) Owner drives trucks to inspection station d) No bulk tank reconciliation e) Some missing OTR fuel receipts

15. Missy Miles – Audit Position UTILIZING OTHER SOURCES • FOR MILES • Mileage Software Program – Determine how many miles to inspection station. • Odometer Readings – Determine GAP miles. • Mass Toll Calculator – Determine miles on Mass Pike. • Form ST-10 (MA Business Use Tax) • Average Daily Miles – With available odometer readings. • SAFESTAT – New Carrier – Form MCS-150 (nearest 10,000 miles for the past calendar year).

16. FORM ST-10 • Massachusetts Turnpike Exemption If you claim the Turnpike miles exemption on your IFTA Quarterly Fuel Tax Schedule, IFTA 101, you are required to file an Annual Massachusetts Business Use Tax Return (Form ST-10) and remit the 5% use tax on the cost of the fuel for which the exemption was taken. Both the Annual Return and payment are due on April 15 .

18. Toll / Mileage Calculator • Entry Interchange: Exit Interchange: Vehicle Class/Type: Number of Axles:Entry Interchange 04 - W. Springfield (I-91) Exit Interchange 12 - Framingham Vehicle Class/Type Class 6 - Any 3 Axle Vehicle w/Dual Tires Number of Axles 3     Toll Mileage Est. Time Eastbound: $6.10 65.7 1:01 Westbound: $6.10 65.7 1:01 Totals: $12.20

19. Vehicle Classifications Trucks:Class 2 - 3 to 5 axle vehicle • any Class 1 vehicle with a 1, 2 or 3 axle trailer • any Class 1 vehicle with a 1, 2 or 3 axle unit that straddles the vehicle body • a 3 or 4 axle RV with single wheels • a 3 or 4 axle limousine Class 3 - 5 to 9 axle truck tractor-trailer, car carrier or truck with 5 to 9 axles Class 4 - not used

20. Vehicle Classifications Class 5 any 2 axle vehicle with dual rear tires, including tow trucks Class 6 tractor, tractor-trailer, truck or RV with dual wheels and 3 axles Class 7 car carrier, truck, tractor-trailer, RV or any vehicle with dual wheels and 4 axles

21. Vehicle Classifications Class 9 5 to 12 axle tandem-trailer (Double Bottom) Bus:Class 8 any two or three-axle bus used to carry 15 or more passengers

22. FORM MCS-150 • USDOT Number (definition): The USDOT number is the number that the FMCSA assigns to each motor carrier that starts interstate operations. • Your USDOT number must be marked on all of your vehicles. • To apply for a USDOT number, submit a Form MCS-150.

24. Missy Miles – Audit Position • FOR FUEL 1) Point to point fill up test to display MPG – to determine how much fuel is missing. 2) Utilize industry standards MPG to determine total fuel. 3) Could create a reconciliation using invoice purchases and weekly meter readings. 4) Could apply a reasonable MPG based on results of other quarters.

25. Missy Miles – Audit Position 5) Could reconcile vehicles to see if they have any non qualified diesel vehicles and/or equipment fueling from bulk tank. 6) Could see if anybody else utilizes the bulk fuel tank. 7) Similar operation. 8) Prior audit. 9) Fueling statements for OTR purchases.

26. Missy Miles – Industry Position What Additional Records Could Be Presented? • For Mileage • Inspection Station Logs • Maintenance Records/Repair Orders • Proof that one truck has driver logs that does the same work as a truck that didn’t have all of its records. • Proof of Driver’s Home Address (Where trucks are housed) • Toll Statements

27. Missy Miles – Industry Position What Additional Records Could Be Presented? • For OTR Fuel – More Receipts!! • For Bulk Fuel • Listing of Assigned Fuel Cards • Third Party Fueling Statements • Bulk Tank Capacity from Fueling Vendor • Invoices • Reconciliation Utilizing Additional Sources Reconciliation Formula Tank Capacity + Purchases – Withdrawals = Fuel Available (Does this fuel exceed Tank Capacity???)

28. Missy Miles – Industry Position If you were the auditor, what would you have done? • Miles • Projected the errors to all involved jurisdictions and provinces? Yes – Missing Miles OR • Treated errors as isolated? Yes – Mass Turnpike and NH Inspection Station Miles and Miles to Driver’s Home

29. Missy Miles – Industry Position Fuel Accountability • Create Bulk Tank Reconciliation • Get as Many Receipts as Possible • Look for Consistent MPG Factors to Prove That You Have All The Records

30. BritSpears Teeny Winy FashionsAudit Facts • Does not maintain daily trip sheets or odometer readings. • Total miles is determined by taking total gallons purchased times 4.0 MPG • AZ and NV miles are estimated based on standards established by BritSpears. CA mileage is determined by subtracting AZ and NV miles from Total Miles. • All fuel is purchased OTR using corporate credit card. • Credit cards are not used exclusively to purchase fuel. • CPA prepares Corporate 1120 and Form 2290, Heavy Highway Use Tax Return

31. BritSpears Teeny Winy FashionsAudit Facts • Some charges on credit card statements did not have corresponding receipt in box of records. • Total dollars spent instead of total gallons purchased was recorded in the spreadsheet for some transactions. • Some fuel receipts recorded a truck number that did not appear on summary spreadsheet.

32. BritSpears Teeny Winy FashionsAudit Position In general, how would you approach this audit? • Review records produced by other personnel, including CPA firm to establish reliable data that can be used. • Focus on establishing total miles using best available information and then auditing the occasional trip to other jurisdictions. The assumption would be that the difference between total miles and the audited AZ and NV miles would be CA miles.

33. BritSpears Teeny Winy FashionsAudit Position Is there some additional information you would request? • AR Journal to establish number of trips and specific drop off locations. • AP Journal to reconcile charge statements to establish that all charge statements have been provided for the test period. • GL/Federal 1120 cost of good sold can be utilized to reconcile gas purchases. • GL Federal 1120 depreciation schedule can be utilized to reconcile the number of vehicles reported. • Federal Form 2290 can also be used to reconcile the number of vehicles.

34. BritSpears Teeny Winy FashionsAudit Position • DOT Logs can be used as a basis for verification of trips, number of vehicles and routing. On what would you base total audit miles? • AR Journal • DOT Logs • Depreciation Schedules • Form 2290

35. BritSpears Teeny Winy FashionsAudit Position Are these considered inadequate records? • R700 Records Requirement - Every licensee shall maintain records to substantiate information reported on the tax returns. Operational records shall be maintained or be made available for audit in the base jurisdiction. Recordkeeping requirements shall be specified in the IFTA Procedures Manual.

36. BritSpears Teeny Winy FashionsAudit Position • R1000 Tax Paid Purchases .100To obtain credit for tax paid purchases, the licensee must retain a receipt, invoice, credit card receipt, or automated vendor generated invoice or transaction listing, showing evidence of such purchases and taxes paid. These records may be kept on microfilm, microfiche or other computerized or condensed record storage system which meets the legal requirement of the base jurisdiction. Licensees are not required to submit proof of tax paid purchases with their tax returns.

37. BritSpears Teeny Winy FashionsAudit Position • A540 Verification of Licensee Records .200 The audit will be completed using the best available information available to the base jurisdiction. The burden of proof is on the licensee. .300 The auditor will make any reasonable attempt to verify information reported on the tax returns. .400 If the base jurisdiction utilizes a distance reporting software program to verify the records of the licensee, that software program shall be used as an audit tool. The auditor must use discretion when verifying the licensee's records. All documentation required to be maintained in accordance with Section P540 of the IFTA Procedures Manual, and any other records used by the licensee to substantiate its distance traveled, must be considered by the auditor(s) in determining an acceptable distance reporting system and the accuracy of reported distance traveled.

38. BritSpears Teeny Winy FashionsAudit Position • 1501 Adequacy of Records A registrant’s distance accounting system must consistently reflect information required under the Audit Procedures Manual, Section 400, Registrant Responsibilities, necessary to evaluate vehicle movement and therefore substantiate the application filing. The source documents must contain necessary details to trace vehicle movement. Additionally, a distance accounting system should be summarized by unit and by jurisdiction.

39. BritSpears Teeny Winy FashionsAudit Position • 401 Acceptable Source Documents The registrant must maintain operational records that support total distance traveled in each jurisdiction and total distance traveled everywhere. Operational records include source documents suitable for verification of fleet mileage/kilometers as reported on registrant’s application for apportionment. An acceptable source document for verifying fleet distance traveled is an "Individual Vehicle Distance Record" (IVDR). A standardized IVDR is suggested and encouraged, but not required. While it is desirable, the necessary information for a trip need not be contained on a single source document. IVDR’s shall contain the following information:

40. BritSpears Teeny Winy FashionsAudit Position • 401 Acceptable Source Documents (cont.) 1. Date of Trip (starting and ending); 2. Trip origin and destination; 3. Route of travel (may be waived by base jurisdiction); 4. Beginning and ending odometer or hubodometer reading of trip (may be waived by base jurisdiction); 5. Total distance traveled; 6. Distance traveled by jurisdiction; 7. Unit number or vehicle identification number.

41. BritSpears Teeny Winy FashionsAudit Position What would you do about missing fuel receipts that appear on the charge statement? • Per R1000 credit should be allowed if the licensee retains a receipt, invoice, credit card receipt or automated vendor generated invoice or transactional listing. • Additional requirements are outlined in P560 and include specific information that must be included on the receipt or invoice. • The credit card statement could constitute an invoice; however, the invoice does not include the required detailed information outlined in P560. Therefore, the tax paid credit could be disallowed. The gallons would still be included in total fuel for purposes of calculating MPG.

42. BritSpears Teeny Winy FashionsAudit Position What would you do about the charges on the credit card statement from gas stations? • Add the charges as fuel by dividing the total dollar by the average price per gallon for that location to arrive at additional audited gallons to be added to total fuel for purposes of calculating MPG. • Disregard additional charges because there is no way to tell what was purchased.

43. BritSpears Teeny Winy FashionsAudit Position What are some alternative sources of information you may be able to use to determine audited miles? Would you look for further information? If not, why? • Same information as above (AR, AP, GL, COGS account, depreciation schedules, federal form 2290 and DOT Logs) • Original vehicle title to obtain odometer readings at purchase and compare to current odometer readings to arrive at total miles at inception. This can be used to estimate yearly/quarterly/monthly total. • Maintenance records may include odometer readings. • Third party request directly to credit card company. • Long term lease contracts. • Federal 1120 total reported revenue reconciliation to account for any cash that may have not been included in accounts receivable.

44. BritSpears Teeny Winy FashionsAudit Position What about the errors made on the spreadsheet using dollars instead of gallons? • Convert to true gallons and calculate an error factor to project over the audit period. • Treat as an isolated error. What errors would you project to other audit periods? • Total miles, allocation of miles and fuel. • Total miles, allocation of miles, spreadsheet error and fuel. • Any other combination.

45. BritSpears Teeny Winy FashionsAudit Position What would you use to verify that all vehicles were reported? • Form 2290 • Depreciation Schedules • DOT Logs • Lease Contracts • Capital Lease Calculations How would you be able to determine the correct registration allocation percentages between jurisdictions? Use the accounts receivable journal to establish actual deliveries to locations outside of CA. These trips could be audited based on the location of customers and assumed starting locations. The other sources of information such as fuel purchases and DOT Logs should be reconciled to the accounts receivable journal.

46. BritSpears Teeny Winy FashionsAudit Position Would you apply 100% base fees or would you calculate another alternative? If you select another alternative, what is it? Why did you choose that method? DOT Logs could be used as another alternative.

47. BritSpears Teeny Winy FashionsIndustry Position • The use of the 4.0 MPG is acceptable since the IFTA Manual, A550, states that unless an auditor finds substantial evidence to the contrary, a standard 4 MPG will be used. • Auditor did not establish inadequate records because they only asked for one quarter. Most court cases involving assessments based on inadequate records have established that the auditor must first look at all of the audit periods records in order to make the determination that there is in fact inadequate records.

48. BritSpears Teeny Winy FashionsIndustry Position • Could use accounts receivable, DOT logs, COGS, etc to establish number of trips and location. • BritSpears established the standard mileage at it’s inception. Since the locations have not changed, the standards used based on number of trips to each location is a reasonable method of determining jurisdictional miles without having to maintain daily trip records. • Acceptable fuel records include invoices and the credit card statements are invoices. Fuel purchase shown on the credit card statement are tax paid purchases and should be allowed. Furthermore, if you are going to include to purchases in total fuel for MPG purposes, then BritSpears should receive the corresponding tax credit.

49. Billy John Bob TruckingAudit Facts • Truck is leased to Super Trucking in MO. • Truck is IFTA credentialed in MO. Truck is IRP plated in KY. • Super Trucking is out of business. • All invoices, trip sheets and logs are sent to Super Trucking. Billy John Bob has a notebook listing trips he made for Super Trucking. • Hauls two loads a week from Louisville, KY to St. Louis, MO.

50. Billy John Bob TruckingAudit Facts • Tag calculated by using the round trip mileage per jurisdiction multiplied by 104 (52 weeks x 2). • Odometer mileage for eight years is 560,000. Average per year is 70,000. IRP mileage per return is 56,160.